CHAPTER 8

INVESTMENT PROPERTY, OTHER NONCURRENT FINANCIAL ASSETS

AND NONCURRENT ASSETS HELD FOR SALE
PROBLEMS
8-1

(Sebastian Corporation)
a.
Purchase price
P
8,600,000
Commission to real estate agent
430,000
Costs of clearing the land (net of timber and gravel recovered
aounting to P65,000)
70,000
Total cost
.
P 9,100,000
b.
4,000,000

Down payment

Market value of shares issued (20,000 x 240)

4,800,000

Present value of non-interest bearing note issued

(2,000,000 x 2.4869)
Total cost of land and building
P13,773,800
Cost allocated to land (30% x 13,773,800)
Cost allocated to building (70% x 13,773,800)

4,973,800

P 4,132,140
P

9,641,660
8-2

(Precious Realty Corporation)

1/2/09
Buildings
Accumulated Depreciation Building Held
as Investment Property
Buildings Held as Investment
Property
Accumulated Depreciation Buildings
12/31/0
9

Depreciation Expense Buildings

Accumulated Depreciation Buildings

8.3

Raymond Company
1.
Building Construction Fund Cash
Cash
2.

Building Expansion Fund Securities

Building Expansion Fund Securities

3.

Building Expansion Fund Securities

Interest Receivable Building Expansion Fund
Building Expansion Fund Cash

4.

Building Expansion Fund Cash

8,200,000
4,200,000
8,200,00
0
4,200,00
0
200,000
200,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale
Dividend Income
5.

Building Expansion Fund Expenses

Building Expansion Fund Cash

6.

Building Expansion Fund Cash

Interest Receivable Building Expansion Fund
Interest Income

7.

Building Expansion Fund Securities

Building Expansion Fund Cash
Building Expansion Fund Cash
Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

8.

8.4

9.

Building Expansion Fund Cash

Dividend Income

10.

Building Expansion Fund Cash

Building Expansion Fund Securities
Gain on Sale of Building Expansion Fund Securities

11.

Buildings
Building Expansion Fund Cash

12.

Cash

Building Expansion Fund Cash

Cordero Corporation
a.
Required Semiannual Deposit
= P15,000,000/ PV of annuity of 1 discounted at 4% for 20 periods
= P15,000,000 / 13.5903 = P1,103,728
b.

1/2/08
Bond Sinking Fund Cash
Cash

1,103,728
1,103,728

6/30/08
Bond Sinking Fund Cash

1,147,877

Cash
Interest Income

44,149

1,103,728

12/31/08
Bond Sinking Fund Cash
Cash
Interest Income
4% ( 1,103,728 + 1,147,877) = 90,064
8.5

1,193,792
1,103,728
90,064

Dorina Company
a.
Entries for 2007 through 2011
7/01/06

Prepaid Life Insurance

Cash

120,000

120,000

62

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale

12/31/06 Life Insurance Expense

Prepaid Life Insurance

60,000

60,000

36,000

06/30/07 Prepaid Life Insurance

Cash
120,000

120,000

12/31/07 Life Insurance Expense

Prepaid Life Insurance
120,000

120,000

06/30/08 Prepaid Life Insurance

Cash
120,000

120,000

12/31/08 Life Insurance Expense

Prepaid Life Insurance
120,000

120,000

06/30/09 Prepaid Life Insurance

Cash
120,000

120,000

12/31/09 Life Insurance Expense

Prepaid Life Insurance
120,000

120,000

12/31/09 Cash Surrender Value

Life Insurance Expense

36,000

06/30/10 Prepaid Life Insurance

Cash
120,000

120,000

12/31/10 Life Insurance Expense

Prepaid Life Insurance
120,000

120,000

Cash Surrender Value

13,000

Life Insurance Expense

13,000
3/31/11

Life Insurance Expense

Prepaid Life Insurance

30,000
4,000,000
30,000

Receivable from Insurance Company

Prepaid Life Insurance

63

30,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale
Cash Surrender Value
49,000

Gain on Insurance Settlement

3,921,000
b.

8.6

If the president or his heirs were the beneficiaries of the policy, the premiums
paid shall be charged to employees benefit expense and no cash surrender
value will be set up by the company.
Solidbank
a.
P10,000,000 x 0.3220 = P3,220,000
b.
Interest Income in 2008 = 12% x P3,220,000 = P386,400
c.
1/1/08
Advances to Officers
3,220,000
Prepaid Compensation Expense
6,780,000
Cash
10,000,000
12/31/08 Advances to Officers
386,400
Interest Revenue
386,400
Compensation Expense
Prepaid Compensation Expense

386,400

386,400
12/31/09 Advances to Officers
432,768
Interest Revenue
432,768
(3,220,000 + 386,400) x 12% = 432,768
d.

8.7

Patriarch, Inc.
a
12/31/08 Machinery Group Held For Sale
Accumulated Depreciation Machinery
Impairment Loss Machinery
Machinery
2,200,000
Machinery Tools
380,000
Machinery Parts
220,000
b.

8.8

Amortized Cost at December 31, 2009 = 3220,000 + 386,400 +

432,768 = 4,039,168

07/17/09 Cash (1,520,000 60,000)

Machinery Group Held For Sale
1,400,000
Gain on Sale of Machinery
60,000

(Invecargill Ltd.)
a.
08/01/08 Impairment Loss Equipment
Loss from Decline in NRV of Inventory
Equipment
15,000
Inventory

64

1,400,000
1,200,000
200,000

1,460,000

15,000
5,000

Chapter 8 Investment Property, Other Non-current Financial Assets & Non-current Assets Held for Sale
5,000
b.

Assets Held for Sale

Accumulated Depreciation
Impairment Loss
Plant
220,000
145,000
75,000

350,000
80,000
30,000

Equipment
Inventory
Goodwill

20,000
c.

MC1
MC2
MC3
MC4
MC5
MC6
MC7
MC8
MC9
MC10
MC11
MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20

02/01/09 Cash (380,000 30,000)

Assets Held For Sale
350,000

350,000

MULTIPLE CHOICE
C
C
A
B
B
C
C
C
B
A
B
A
B
D
B
A
A
110,000 (115,000 80,000)
D
9,000,000 1,500,000 = 7,500,000 which is lower than carrying
amount of
P8,000,000.
D
(9,200,000 1,300,000) 7,500,000 = 400,000
C
2,000,000 x 0.7972 = 1,594,400
1,594,400 x 12% x 6/12 = 95,664; 1,594,400 + 95,664 =
1,690,064

65